Suncor, Cenovus see offshore optimism
New life breathed into stalled oil projects in N.L.
CALGARY — Two of Canada’s largest oil companies, Suncor Energy Inc. and Cenovus Energy Inc., are swapping interests in stalled offshore oil projects in a move that could restart work at both and boost job prospects in Newfoundland and Labrador.
The Calgary-based oil majors announced agreements to restructure both the Terra Nova and West White Rose projects off the coast of Newfoundland and Labrador. The agreements, supported by $205 million in funding from the provincial government, mean work will restart on the Terra Nova project this month and the companies will evaluate the feasibility of restarting work on West White Rose by the middle of 2022.
The Terra Nova life extension provides “strong economic returns and ... longterm value for investors,” Suncor president and CEO Mark Little said in a news release announcing the company and its partners would move forward with maintenance work on the project this month, under newly restructured agreements.
The project is expected to return to operation in 2022 and will now continue operating until 2033.
Suncor will increase its ownership stake in the project from roughly 38 per cent to 48 per cent, Cenovus will increase its stake from 13 per cent to 34 per cent and El Dorado, Ark.-based Murhpy Oil Corp. will boost its ownership from 10 per cent to 18 per cent. The concentrated ownership structure will lead to four international oil companies — Exxon Mobil Corp., Chevron Corp., Norway’s Equinor SA and Mosbacher Operating LLC — exiting the project.
“This agreement also provides certainty for the 1,000plus local direct and indirect jobs that support the project,” Little said.
“We appreciate the deep collaboration and support from the provincial and federal governments, which has been crucial to helping us reach this important milestone.”
Suncor is also boosting its ownership interest in the West White Rose project from 27.5 per cent to 40 per cent, in exchange for a cash payment from Cenovus, which is reducing its stake from 72.5 per cent to 60 per cent.
“Sanctioning the Terra Nova asset life extension provides a superior value proposition for our shareholders compared with the alternative of abandoning and decommissioning the project,” Cenovus president and CEO Alex Pourbaix said in a release. “While we are still evaluating whether to proceed with West White Rose, the capital risk in our portfolio will be reduced if we decide to move forward.”
The two agreements, announced back-to-back after markets closed Wednesday, were cause for celebration in the Atlantic province’s struggling offshore oil industry and for a province that had been expected to face the slowest economic recovery from the COVID-19 pandemic.
“This will get the province back on track for more normal levels of economic activity,” said Pedro Antunes, chief economist at the Conference Board of Canada, noting that he had previously expected the province’s GDP to grow by 4.5 per cent in 2021 and 2.5 per cent in 2022. He said the restart of work at Terra Nova creates “upside risk” to those numbers.
“Oil production will show up in the GDP numbers big time,” Antunes said.
Local contractors working with the equipment and ships that service the Terra Nova and West White Rose facilities are also expected to benefit.
“The Terra Nova (floating, production, storage and offloading facility) once looked perilously close to never returning to production and now we will see work begin immediately here in the province,” Charlene Johnson, CEO of the Newfoundland and Labrador Oil and Gas Industries Association, said in a release, adding that the development “means significant work for NOIA members.”
Roughly 1,000 workers were laid off when work stopped on the Terra Nova project in late 2019, marking a major blow to a province of roughly half a million people, which experienced a 5.3 per cent contraction in its GDP in 2020, according to RBC Economics.
Then, in early 2020, thenowner Husky Energy Inc. announced it would suspend work on the West White Rose project and directly asked for assistance in financing the project. Cenovus bought Husky for $9 billion last year, including debt, and had not publicly signalled whether it would restart work on West White Rose as it evaluated which of the acquired Husky assets it would keep or sell.
“I am far more optimistic about the future of the West White Rose project today than I was a few weeks ago,” NOIA’S Johnson said.
“We look forward to continuing to work with them on these projects and the significant opportunities they bring for NOIA members in the supply and service sector.”
The two projects are important to Newfoundland and Labrador’s economy but represent a “relatively small part” of Suncor’s and Cenvous’ portfolios, Scotia Capital analyst Jason Bouvier wrote in a research note, adding that he did not expect the share price of either company to react to the news.
“We have a positive view of the decision to proceed with the Terra Nova life extension and re-evaluate the West White Rose project,” Bouvier wrote.